There are a few instances, outside of a melodramatic Ethics Follies® musical, where “doing the right thing” is all-at-once extremely difficult, injurious to one’s own career, and emotionally draining. However, a room of ethics and compliance professionals heard of one such instance today from San Antonio native Armando Falcon. Falcon is the lead consultant for Falcon Capital Investors in Washington D.C. He survived an attack by unethical politicians and government employees for refusing to back off his belief that the hugely powerful Fannie Mae and Freddie Mac corporations were committing accounting fraud. After years of struggling to prove his belief, Falcon was proven by an accounting firm to be correct and the leadership of Fannie Mae was exposed for being arrogant and corrupt.

Fannie Mae is short for the Federal National Mortgage Association, which was formed by the federal government during the Great Depression. It became publicly-traded years later. According to the Harvard Business Journal, the corporation’s purpose is “to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts.” Over many years, a group of individuals, including the infamous Franklin Raines, methodically used Fannie Mae to create their own great wealth hidden behind a cloak of secrecy and shielded by members of Congress. John Grisham should write such a story. Unfortunately for Falcon, his wife and two children, it wasn’t fiction.

When asked today how Falcon handled the personal criticism and attacks, he remained calm, explaining that he knew he would just do the right thing as long as he could and then just come back to San Antonio if he needed to start over. Many people would have quit when powerful members of Congress repaid political favors to protect Fannie Mae by attacking Falcon personally. They made misstatements about his abilities and his work as the Director of the Office of Federal Housing Enterprise Oversight (OFHEO), a position he held from 1999-2005.

Falcon told this very engaging story today at his alma mater, St. Mary’s University, and was hosted by the Greater San Antonio Ethics and Compliance Roundtable, of which I am a member. In the late 1960s, the young Armando Falcon used to fly his kite in the Pecan Grove which is now just a small section of the San Antonio campus. He grew up two blocks from the school.

The most disturbing part of Falcon’s story was that, despite his excellent work history with Henry B. Gonzalez, a U.T. law degree, and a masters from Harvard, he was, for a time, powerless against the corruption of D.C. Our government representatives in D.C. are, for the most part, corrupt and can be bought. Falcon went so far as to say that people who make it into a Congressional seat are, by the nature of how one gets there, most likely unqualified to be there. He said there are exceptions in that some do great work with complete commitment to public service, but they are the minority. D.C. politics is fueled by arrogance and greed, and the need to fulfill huge egos. He also mentioned that there were some people who helped him, like Senator Paul Sarbanes, who is, in part, responsible for the Sarbanes Oxley Act that created a code of ethics for publicly-traded companies and requires more accountability.

Falcon tries to stay positive about public service despite the corruption he witnessed. He said that he still loves public service and after taking a break in his current position, he may return to public service again one day. His work as a consultant to help others prevent fraud and white collar crime in their companies is also satisfying.

He is truly David who defeated Goliath. A New York Times story of that title follows and is one of Mr. Falcon’s favorites when he was finally vindicated:

Man Who Toppled Chief of Fannie Mae Is Seen as a David Who Beat Goliath

By ERIC LIPTON Published: December 23, 2004

ASHINGTON, Dec. 22 – They sat across from each other in a mahogany and velvet booth at one of those power-lunch restaurants near the White House: the top executive of the nation’s fourth-largest financial institution and the little-known director of an obscure and historically ineffective federal regulatory agency.

The regulator, Armando Falcon Jr., had just narrowly avoided being ousted from his job, after being ridiculed for running an agency that did little more than rubber-stamp reports from corporate auditors.

But this was the moment, in September 2003, that Mr. Falcon intended to make clear to his lunch guest, Franklin D. Raines, chief executive of the nearly $1 trillion mortgage finance giant known as Fannie Mae, that the balance in power between the two men was about to shift.

“I am not going to be dissuaded,” Mr. Falcon told Mr. Raines, referring to a broad investigation his agency was just then starting into the accounting practices at Fannie Mae. “This is necessary. If there are no problems with the company, the company will be better off, as we will so notify all interested parties. But we are going to go ahead.”

The announcement on Tuesday of the resignation of Mr. Raines, after a year and a half of inquiry by Mr. Falcon and his agency, the Office of Federal Housing Enterprise Oversight, should serve as more than adequate proof that Mr. Falcon was not bluffing during that lunch at the Old Ebbitt Grill. David has toppled Goliath.

How this moribund regulatory agency – which members of Congress were trying to strip of its powers as recently as last spring – transformed itself into a powerhouse that could force so consummate a politician and businessman as Mr. Raines to back down is a testament, several observers in Washington said, to the perseverance of Mr. Falcon, a soft-spoken and often underestimated 44-year-old lawyer.

“This is not a crusader,” said Stanley Sporkin, the former head of enforcement at the Securities and Exchange Commission, who has advised Mr. Falcon in recent months. “This is a very, very deliberate, decent, focused person, who once he makes a decision, he carries it out; he does not vacillate.”

Fannie Mae is the nation’s largest buyer of home mortgages, which it bundles into enormous packages of securities that are then resold to investors on the world markets. The activity benefits home lenders by freeing up capital for them to reinvest and it reduces costs on mortgages by indirectly linking home buyers to huge pools of capital.

It is run like a private corporation – with a board of directors and Mr. Raines as chairman and chief executive since 1999 – but it is a government-sponsored entity that received special benefits from the federal government, including the ability, if necessary, to borrow money directly from the Treasury Department.

The Office of Federal Housing Enterprise Oversight, known as Ofheo, has been charged since 1992 with supervising both Fannie Mae and the smaller related mortgage refinancing company, Freddie Mac.

Mr. Falcon’s push to intensify the oversight into Fannie Mae came after his agency suffered in 2003 one of its most embarrassing moments: just days after it declared Freddie Mac to have effective auditing and internal controls, the company disclosed that it had understated its earnings by billions of dollars over several years.

Mr. Falcon, at the time, was seen as part of the problem; to some observers, he did not seem to have the clout, leadership skills or expertise to go up against a trillion-dollar enterprise like Fannie Mae. His appearances before Congress were particularly telling, as Mr. Falcon, who took over the agency in 1999, was at times not able to answer questions, deferring to other members of his staff, or spoke so softly that he was asked to speak up.

“He was not particularly convincing or inspiring,” said Bert Ely, a consultant to financial institutions. “He just came across as someone who was not up to the job.”

Mr. Falcon, who first came to Washington as a young lawyer in 1989 to work on the House Banking Committee under Representative Henry B. Gonzalez, is a Texas native and the son of an aircraft technician.

He said there were times when he wondered if he had taken on too big a target. “You can feel overwhelmed by what you are up against,” he said.

But as he sought to respond to the embarrassment of the Freddie Mac debacle, he brought in a team of seasoned consultants and staff members, including Stephen Blumenthal, a former banking and financial services analyst at Schwab Washington Research Group; Lynn E. Turner, the former chief accountant at the Securities and Exchange Commission; and Mr. Sporkin, who in addition to working at the S.E.C. had served as general counsel to the Central Intelligence Agency and as a federal judge for the District of Columbia. He also hired Deloitte & Touche, the global accounting firm, to help examine practices at Fannie Mae.

“We could no longer take it on faith that the external auditor and the company were making sure that the accounting was correct,” Mr. Falcon said in an interview Wednesday.

With this new approach in place, the crucial point now would be to maintain the course, despite attacks that came from certain members of Congress, homebuilders and others, Mr. Falcon said. “Unfortunately, this all got caught up in a political tug of war going on at Capitol Hill,” he said. “It became, ‘Are you prohousing or antihousing?’ when what we were trying to do was just address safety and soundness.”

In September, a report issued by Ofheo concluded Fannie Mae used a series of accounting tricks to disguise weaknesses that left it vulnerable to instability in the event of a financial crisis. Mr. Raines disputed the findings. But the order last week by the S.E.C. to Fannie Mae to restate its earnings confirmed in large part Mr. Falcon’s assertions – and meant the end of Mr. Raines’s tenure.

Mr. Falcon said that even before that lunch at the Old Ebbitt Grill, the inquiry has never been about personalities. “I have no animosity toward Frank Raines,” he said. “But it is clear that this is bigger than people. This is about the mission of the company and the public interest that needs to be served.”

Mr. Falcon’s future is unclear: his appointment at Ofheo expired in October and he has said that he intends only to remain until his successor, who must be nominated by President Bush, is confirmed. But even among some of his critics, Mr. Falcon has now earned a new measure of respect.